What if my franchise agreement is silent on transfers?

If your franchise agreement seems to say nothing about transfers, your first step is to confirm it really is silent. Under Ontario’s Act, one form of franchise involves a payment to the franchisor or its associate, and the franchisor granting the right to sell goods or services substantially associated with a trade-mark owned by or licensed to the franchisor or its associate, with significant control or assistance in the method of operation. A buyer needs that right, not only your equipment and lease. Silence leaves a gap, and it does not tell you which way the gap falls.

Confirm that it is silent

Look beyond the main transfer clause. Check the definitions of “transfer” and “assign”, any wording about a change in who owns or controls the franchisee company, the clauses on ending the agreement, and any manual, schedule or addendum the agreement incorporates. Check whether the agreement says the written document is the entire agreement, and ask the franchisor for every amendment. An approval right can sit in a document you were never handed.

What the Acts add

Ontario’s Arthur Wishart Act and British Columbia’s Franchises Act each say that every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement. Both say it includes acting in good faith and in accordance with reasonable commercial standards, and both give a party a right of action for damages if the other breaches it. The Canadian Franchise Association notes that several provinces have franchise legislation and that there are important differences between jurisdictions, so check the Act that governs your agreement.

What the resale wording does and does not do

The Acts also exempt some franchisee-to-buyer sales from the franchisor’s disclosure duty. In Ontario, one condition is that the grant is not effected by or through the franchisor, and the Act says a grant is not effected that way merely because the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove it, or charges a transfer fee that meets the Act’s test. That wording concerns disclosure. It does not create an approval right, and it does not remove one.

What to do next

Ask the franchisor in writing how it treats a sale and what it will require, and keep the reply. Make any purchase agreement conditional on the franchisor’s written consent, or on its written confirmation that none is needed. Have a lawyer read the agreement before you market the business. Our answer on who has to approve a franchise resale explains how the franchisor and lender tracks run.